Identifying trends with trend lines

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THE TREND IS YOUR FRIEND
The price chart of a stock or commodity may appear like a random distribution, but this is not so. About 30% of the time a stock or commodity will be in a definite trend. The rest of the time prices will trade more or less in a side ways range.

As a trader or investor it is our job is to recognize trends early, as they emerge from non trends or as reversals of prior trends. Then to buy or sell stocks or commodities early in these new trends and exit the trade profitably when the trend ends. This identification of trend, its birth and demise, is the most important thing we have to do. This is how fortunes are made.

Trends
Trend is the easiest and the most difficult thing to understand. The difficulty arises because of the time factor. Whenever we talk of trend it has to be related to the context of time. An intra-day price chart may show a significant trend which is contrary to a trend recognizable on a daily price chart which may be contrary to a trend on a weekly chart.

Successful investing depends on recognizing the secular, primary or long term trend. To be successful one should take a position when at least the short term and intermediate term trends are in the same direction.

Definition of trend.

An up trend is present when prices make a series of higher highs and higher lows.

A down trend is present when prices make a series of lower highs and lower lows.

When prices move without such a discernible series prices are said to be trading side ways or in a trading range.

Most people like to think of themselves as risk takers, but what they really want is a guaranteed outcome with some momentary suspense to make them feel as if the outcome had been in doubt. The momentary suspense adds the thrill factor necessary to keep our lives from getting too boring. - Mark Douglas

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Most people like to think of themselves as risk takers, but what they really want is a guaranteed outcome with some momentary suspense to make them feel as if the outcome had been in doubt. The momentary suspense adds the thrill factor necessary to keep our lives from getting too boring. - Mark Douglas

Attachments

Most people like to think of themselves as risk takers, but what they really want is a guaranteed outcome with some momentary suspense to make them feel as if the outcome had been in doubt. The momentary suspense adds the thrill factor necessary to keep our lives from getting too boring. - Mark Douglas

Moderator

It is estimated that stock and commodity prices may spend as much as 70% of their time in a relatively narrow trading range. These periods of sideways or ranging market action may be periods of accumulation at market bottoms or distribution at market tops or consolidation during trends. For nimble short term traders they can be an opportunity to make profits but BIG PROITS come from identifying and trading trends. Our purpose is to identify the beginnings and ends of trends early and to profit on the development of that trend. However, periods of range trading can be of help to us and it is worthwhile recognizing them, monitoring them, for eventually the range will end and break into a trend.

Ranges can be identified by the up and down price movement between areas of distinct support and resistance. Once the boundary of the range is broken then we should be prepared to act. Sometimes the market fools us by breaking out of the range only to quickly reverse and proceed entirely in the opposite direction. Therefore, on the break out of the range one must either wait and see the breakout confirmed or, if not confirmed, allow a 3-5% price change to occur.

See attached chart for example.

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Most people like to think of themselves as risk takers, but what they really want is a guaranteed outcome with some momentary suspense to make them feel as if the outcome had been in doubt. The momentary suspense adds the thrill factor necessary to keep our lives from getting too boring. - Mark Douglas